PURCHASE AND INVESTMENT AGREEMENT
PURCHASE AND INVESTMENT AGREEMENT (this "Agreement"), dated as of
the ____ day of May, 1999, by and between Ergovision, Inc. (the "Company"), a
Delaware corporation, and _______________ (the "Purchaser"), an individual
residing at _________________________________________.
W I T N E S S E T H:
WHEREAS, the Company desires to sell ______ shares of its common stock,
$.001 par value per share, (the "Common Stock") to the Purchaser, and
WHEREAS, the Purchaser, being an accredited and sophisticated investor
under the Securities Act of 1933 (the "1933 Act"), does hereby desire to
purchase such shares of Common Stock, subject to the terms and conditions set
forth herein;
NOW, THEREFORE, the following will constitute the agreement between the
Company and the Purchaser with respect to the Purchaser's investment in the
Company.
1. Purchase of Shares (a) The Purchaser hereby purchases from the Company
______ shares (the "Shares") of the Common Stock, at a price of $1.00 per share,
for a total purchase price of $______ (the "Purchase Price").
(a) The Company shall deliver to the Purchaser a certificate
representing the Shares, registered in the name of the Purchaser.
2. INTENTIONALLY OMITTED.
3. Notice of Transfer Subject to Section 7 hereof, and in addition to any
notice that may be required under applicable securities laws, the Purchaser
agrees that he shall notify the Company not more than five (5) days subsequent
to the transfer of any or all of the Shares.
4. Representations and Warranties of the Purchaser. The Purchaser
represents, warrants and covenants to the Company and each of its officers,
directors, persons who control the Company and any affiliates of the foregoing
that:
(a) Either (i) the Purchaser is a director or executive officer of
the Company, (ii) the Purchaser has a net worth, inclusive of the value of the
Purchaser's homes, home furnishings and automobiles, of at least $1,000,000
(which net worth may include the Purchaser's spouse's net worth), (iii) the
Purchaser's individual income for each of the past two calendar years exceeded
$200,000 and the Purchaser reasonably expects the Purchaser's individual income
to exceed $200,000 in the current year, (iv) the Purchaser's income together
with the income of the Purchaser's spouse for each of the past two calendar
years exceed $300,000 and the Purchaser reasonably expects the Purchaser's
income together with that of the Purchaser's spouse to exceed $300,000 in the
current year, or (v) the Purchaser has such knowledge and experience in business
and financial matters that the Purchaser is capable of evaluating the merits and
risks of an investment in the Company.
(b) The Purchaser is acquiring the Shares for the Purchaser's own
account, for investment only and not with a view toward the resale or
distribution thereof.
(c) The Purchaser understands that the Shares are not registered
under the 1933 Act and may not be resold unless subsequently registered under
the 1933 Act or unless an exemption from such registration is available. The
Purchaser understands that the Shares have not been approved or disapproved by
the Securities and Exchange Commission (the "Commission"), or any other federal
or state agency, nor has the Commission or any such agency passed upon the
accuracy or adequacy of any of the information provided to the Purchaser.
(d) The Purchaser has adequate funds to provide for the Purchaser's
personal needs and does not and will not require the funds comprising the
Purchase Price for liquidity purposes. The Purchaser possesses the ability to
bear the economic risk of holding the Shares indefinitely and can afford a
complete loss of the investment contemplated hereby.
(e) In making the Purchaser's investment in the Shares, no oral
representations or warranties have been made to the Purchaser. The Purchaser
acknowledges that the Purchaser has been advised that, except for Mr. Xxxx Xxxxx
and Xx. Xxxx Xxxxxx, no person is authorized to give any information or to make
any statement regarding the Company's Strategic Business Plan and the
attachments thereto (the "Business Plan"), and that any information or statement
not made by such persons must not be relied upon as having been authorized by
the Company or any professional advisors or counsel thereto. The Purchaser
acknowledges that the Company makes no representations or warranties, expressed
or implied, with respect to the completeness or accuracy of the Business Plan,
as to the contents of any other written or oral communication transmitted or
made available to the Purchaser or the Purchaser's representatives, and that the
Purchaser and the Purchaser's representatives must rely on their own due
diligence of the Company and their own independent verification of the
information provided in the Business Plan and any other investigations deemed
necessary for the purpose of determining whether to proceed with the investment
in the Company. The Purchaser acknowledges that the Business Plan includes
certain statements, estimates and projections provided by the Company with
respect to anticipated future performance of the Company, which reflect various
assumptions by the Company's management concerning anticipated results, which
may or may not occur. Purchaser acknowledges that the actual performance of the
Company may be materially different from those set forth in such statements,
estimates or projections.
(f) The Purchaser has reviewed, carefully read and completed the
Investor Questionnaire attached as Exhibit B hereto. All information provided by
the Purchaser to the Company, including that contained in the Investor
Questionnaire submitted herewith, is true and correct in all material respects
as of the date hereof.
(g) INTENTIONALLY OMITTED
(h) The Purchaser is aware that all documents, records and books
pertaining to this investment are at all times available at the offices of the
Company at Xxx Xxxxxxxxx Xxxxx, Xxxxxxxxx, Xxx Xxxx 00000, or at the offices of
the Company's counsel, Rosenman & Colin LLP, 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx 00000, Attn: Xxxx X. Xxxxxx, Esq., and acknowledges that all documents,
records and books pertaining to this investment requested by the Purchaser,
including without limitation, the Company's unaudited financial statements as of
December 31, 1998 and for the year then ended, (a copy of the trial balance of
which is attached as Exhibit C hereto) and capitalization chart (a copy of which
is attached as Exhibit D hereto) have been made available to the Purchaser, and
the Purchaser has been supplied with such additional information concerning this
investment as has been requested.
(i) The Purchaser has been given the opportunity to discus the
Purchaser's investment in, and the operation of, the Company with the Company's
management and has been
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given all information that the Purchaser has requested and which the Purchaser
deems relevant to the Purchaser's decision to invest in the Company.
(j) There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of the
Purchaser who might be entitled to any fee or commission from the Company or any
of its affiliates upon consummation of the transactions contemplated by this
Agreement.
5. Representations and Warranties of the Company. The Company represents
and warrants to the Purchaser as follows:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power and authority to own or lease all of its properties and assets
and carry on its business as it is now being conducted, except for such power
and authority the lack of which would not have a materially adverse effect on
the Company. The Company is qualified to transact business as a foreign
corporation in each jurisdiction where it is required to so qualify except for
such jurisdictions where the failure to so qualify would not have a Material
Adverse Effect. True and correct copies of the Company's Certificate of
Incorporation and Bylaws have been provided to the Purchaser.
(b) The Company has the corporate power and authority to execute and
deliver this Agreement, and all other documents hereby contemplated, to
consummate the transactions hereby and thereby contemplated and to take all
other actions required to be taken by each of them pursuant to the provisions
hereof and thereof. The execution, delivery and performance of this Agreement
and all other documents hereby contemplated to be executed by Company has been,
and the consummation by Company of the transactions hereby and thereby
contemplated has been, duly authorized by any and all necessary corporate or
other action of Company. The Board of Directors of Company has authorized and
approved the execution, delivery and performance of this Agreement and the
transactions contemplated hereby. This Agreement and all other documents hereby
contemplated to be executed by Company constitute the legal, valid and binding
obligations of Company, enforceable against Company in accordance with their
respective terms, except as such enforceability may be limited by bankruptcy,
moratorium, insolvency, fraudulent conveyance, reorganization, or other similar
laws affecting the enforcement of creditor's rights.
(c) Neither the execution and delivery of this Agreement or any
other documents hereby contemplated nor the consummation of the transactions
hereby and thereby contemplated shall (i) constitute any violation or breach of
the Certificate of Incorporation or By-laws of the Company, (ii) constitute a
default under or a violation or breach of, or result in acceleration of any
obligation under, any provision of any contract, lease, mortgage or other
instrument to which it is a party or to which any of its assets is subject, or
(iii) violate any judgment, order, writ, injunction, decree, statute, rule or
regulation affecting Company or any of its assets, which violation, breach or
default, in the case of subclauses (ii) or (iii) of this sentence, would have a
materially adverse effect on Company.
(d) Except as would not have a Material Adverse Effect, (i) the
Company has complied with all governmental laws, statutes, policies, regulations
and rules (including, without limitation, any federal, state or local laws,
rules or regulations regulating the safety of the workplace and/or the discharge
of materials into the environment or otherwise relating to the protection of the
environment) applicable to its business as conducted on and prior to the date
hereof, (ii) the Company has maintained in full force and effect all material
licenses, approvals, permits and consents for the lawful conduct of its
business, (iii) to the best of its knowledge, the Company is not in violation of
any material governmental laws, statutes, policies, regulations or
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rules applicable to the Company, and has not received any notice of any such
violation, and (iv) no authorization, approval, order, license, permit,
franchise or consent, and no registration, declaration, notice or filing by or
with any domestic or foreign governmental agency (including, without limitation,
any filing or registration pursuant to the securities or blue sky laws of the
United States of America or any state or territory thereof) by the Company is
required in connection with the execution and delivery by the Company of this
Agreement and the consummation of the transactions hereby contemplated.
(e) The capitalization of the Company, including all outstanding
stock options, is accurately and fully set forth as Exhibit D hereto or as
otherwise disclosed in the Financial Statement attached as Exhibit C hereto.
Except for the rights to acquire Common Stock pursuant to the options listed on
Exhibit D hereto, there are no outstanding options, warrants, rights (including
conversion or preemptive rights) or agreements for the purchase or acquisition
from or sale or disposition by the Company of any shares of its capital stock.
Except as set forth on Exhibit D hereto or as otherwise disclosed in the
financial statements attached as Exhibit C hereto, the Company is not a party or
subject to any agreement or understanding which affects or relates to the voting
or giving of written consent with respect to any security or by any director of
the Company. The outstanding shares of capital stock are all duly and validly
authorized and issued, fully paid, and non-assessable, and were issued in
compliance with all applicable federal and state securities laws. The Shares to
be issued to pursuant to the provisions of this Agreement will, upon such
issuance, be duly authorized, legally and validly issued, and fully paid and
nonassessable.
(f) Exhibit C hereto contains (i) the unaudited balance sheet of the
Company as of December 31, 1998, and the related statements of operations, cash
flows and shareholders' equity, including the notes thereto, for the year then
ended and (ii) the unaudited balance sheet of the Company as of February 28,
1999 and the related statements of operations, cash flows and shareholders'
equity, including the notes thereto, for the two-month period then ended, all of
which have been compiled by the Company's certified public accountant. Such
financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 1998 and February 28, 1999,
respectively, and the results of the Company's operations, cash flows and
shareholders' equity for the year ended December 31, 1998 and the two-month
period ended February 28, 1999, all in conformity with GAAP applied on a
consistent basis, except as otherwise stated in such financial statements or the
accountant's report thereon.
(g) The Business Plan and the assumptions underlying the Business
Plan have been prepared or made in good faith and, to the Company's knowledge,
are reasonable in all material respects. No other representations are made as to
the accuracy of the statements, estimates, or projections set forth in the
Business Plan, and actual performance of the Company may be materially different
from those set forth in such statements, estimates or projections.
(h) (i) Since February 28, 1999, except as disclosed on Schedule D
there has not been:
(A) any change in the assets, liabilities, condition (financial or
otherwise), affairs, earnings, business, operations, or prospects of
the Company from that reflected in the balance sheet as at February
28, 1999, referred to in subsection (f) above, except for changes in
the ordinary course of business (including diminution in cash
position and expenses in excess of revenues) which, either
individually or in the aggregate, have not had, or may be reasonably
expected to result in, a Material Adverse Effect;
4
(B) any incurrence of liabilities or obligations by the Company,
contingent or otherwise, whether due or to become due, whether by
way of guaranty, endorsement, indemnity, warranty, or otherwise,
except liabilities and obligations incurred in the ordinary course
of business, none of which has had, or is reasonably likely to
result in, a Material Adverse Effect;
(C) any increase in compensation of any of its existing officers, or the
rate of pay of its employees as a group, except as part of regular
compensation increases in the ordinary course of business;
(D) any resignation or termination of employment of any officer or key
employee of the Company;
(E) any change in the accounting methods or practices followed by the
Company;
(F) except as otherwise disclosed in the Financial Statements attached
as Exhibit C hereto, any issuance of any stock, bonds, or other
securities of the Company or options, warrants, or rights or
agreements or commitments to purchase or issue such securities or
grant such options, warrants or rights, except as described in
Subsection (e); or
(G) any agreement by the Company to do or enter into any of the
foregoing.
(ii) Since the inception of the Company, except as disclosed
on Schedule E hereto, there has not been:
(A) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties,
operation or business of the Company;
(B) any loans made by the Company to its employees, officers, or
directors other than advances of expenses made in the ordinary
course of business;
(C) any declaration or payment of any dividend or other distribution of
the assets of the Company or any direct or indirect redemption,
purchase or acquisition of any securities of the Company;
(D) any labor organization activity or organized labor trouble;
(E) any sale, transfer, or lease of any of the Company's assets except
in the ordinary course of business, individually in excess of
$50,000, or in the aggregate in excess of $100,000, or any mortgage
or pledge of or lien imposed upon any of the Company's assets;
(F) to the best of the Company's knowledge, any other event or condition
of any character which has materially and adversely affected the
business, prospects, condition, affairs, operations, properties or
assets of the Company; or
(G) any agreement by the Company to do or enter into any of the
foregoing.
(i) Except as described on Schedule F hereto: (i) there is no
action, suit, proceeding, or investigation pending or to the Company's knowledge
currently threatened against the Company which questions the validity or
enforceability of this Agreement or the right of the Company to enter into such
agreement, or to consummate the transactions contemplated hereby, or which might
result, either individually or in the aggregate, in any Material Adverse Effect
5
with respect to the assets, condition, affairs, or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company, including, without limitation, actions pending or threatened involving
the prior employment of any of the Company's employees, their use in connection
with the Company's business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations under any
agreements with prior employers; (ii) the Company is not a party or subject to
the provisions of any order, writ, injunction, judgment, or decree of any court
or government agency or instrumentality; and (iii) there is no action, suit,
proceeding or investigation by the Company currently pending which the Company
intends to initiate.
(j) Except as described on Schedule G, the Company has sufficient
title and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights, and processes
necessary for its business as now conducted (collectively, "Intellectual
Property Rights") without any conflict with or infringement of the rights of
others. Schedule G contains a complete list of all Intellectual Property Rights
of the Company and registrations and applications for registration therefor.
Except as shown on Schedule G, there are no outstanding options, licenses, or
agreements of any kind relating to the Company's Intellectual Property Rights,
nor is the Company bound by or a party to any options, licenses, or agreements
of any kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights, and
processes of any other Person, except the so-called "execute by opening"
software license agreements. The Company has not received any communications or
claims alleging that the Company has violated or, by conducting its business as
proposed, would violate, any of the patents, trademarks, service marks, trade
names, copyrights, or trade secrets or other proprietary rights of any other
person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants, or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Company, or that would
conflict with the Company's business as proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as proposed, will, to the Company's knowledge, conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any of such employees is
now obligated. Except as described on Schedule H, the Company does not believe
it is or will be necessary to utilize any inventions of any of its employees (or
people it currently intends to hire) made prior to their employment by the
Company.
(k) There is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of the
Company who might be entitled to any fee or commission from the Purchaser or any
of his affiliates upon consummation of the transactions contemplated by this
Agreement.
(l) Neither this Agreement, nor any other statements or certificates
made or delivered in connection herewith, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
herein or therein, in light of the circumstances in which they were made, not
misleading.
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6. Legend The Purchaser agrees that the certificates evidencing the
Shares shall bear the following legend restricting their transferability under
the Act:
LEGEND
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("ACT"). NO SALE, OFFER TO SELL OR TRANSFER OF THE SHARES REPRESENTED BY
THIS CERTIFICATE SHALL BE MADE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT, OR AN OPINION OF COUNSEL TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
7. Registration Rights, Co-Sale Rights and Bring-Along Rights. The
Purchaser shall have the following registration rights, co-sale rights and
bring-along rights:
(a) INTENTIONALLY OMITTED.
(b) "Piggyback" Registration. If at any time after the date hereof,
the Company proposes to register any of its securities (other than on Form S-4
or other applicable form in connection with a merger, or pursuant to Form S-8 or
other comparable form), the Company shall request that the managing underwriter
(if any) of such underwritten offering include the Shares in the offering
covered by such registration statement. If such managing underwriter agrees to
include the Shares in the underwritten offering, and in any event in a
non-underwritten offering, the Company shall at such time give prompt written
notice to the Purchaser of its intention to effect such registration and of the
Purchaser's right under such proposed registration, and upon the request of the
Purchaser delivered to the Company within twenty (20) business days after
receipt such notice (which request shall specify the Shares intended to be
disposed of by the Purchaser and the intended method of disposition thereof),
the Company shall include such Shares held by the Purchaser requested to be
included in such registration; provided, however, that:
(i) If, at any time after giving such written notice of the
Company's intention to register any of the Purchaser's Shares and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay the registration of the offering which includes such Shares, at its sole
election, the Company may give written notice of such determination to the
Purchaser and thereupon shall be relieved of its obligation to register any
Shares issued or issuable in connection with that particular registration (but
not from its obligation to pay registration expenses in connection therewith or
to register the Shares in a subsequent registration); and in the case of a
determination to delay a registration shall thereupon be permitted to delay
registering any Shares for the same period as the delay in respect of securities
being registered for the Company's own account.
(ii) If the managing underwriter in such underwritten offering
shall advise the Company that it declines to include a portion or all of the
Shares requested by the Purchaser to be included in the registration statement,
then registration of all or a specified portion of the Shares shall be excluded
from such registration statement (in case of an exclusion as to a portion of the
Shares, such portion to be excluded shall be allocated among the Purchaser and
any affiliates and other selling shareholders of the Company, including
securities to be registered in such underwritten offering in proportion to the
respective number of Shares and other securities requested to be registered by
each such affiliate or shareholder). In such event the Company shall give the
Purchaser prompt notice of the number of Shares excluded from such
7
registration at the request of the managing underwriter. No such exclusion shall
reduce the securities being offered by the Company for its own account to be
included in such registration statement.
(iii) The Purchaser, subject to the provision of Section 7(c),
shall have the option to include the Shares in the Company's underwritten
offering. The Company shall not be required to include any of the Purchaser's
Shares in an underwritten offering of the Company's securities unless the
Purchaser accepts the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it (provided such terms are usual and
customary for selling stockholders) and the Purchaser agrees to execute such
documents in connection with such registration as the Company or the managing
underwriter may reasonably request.
(c) Cooperation with Company. The Purchaser will cooperate with the
Company in all respects in connection with this Agreement, including, timely
supplying all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Shares.
(d) Termination of Rights. The Company's obligations under Sections
7(a) and 7(b) shall terminate upon the date upon which the Shares are eligible
for resale without registration pursuant to section (k) of Rule 144 ("Rule 144")
of the 1933 Act.
(e) Registration Procedures. If and whenever the Company is required
by any of the provisions of this Agreement to effect the registration of any of
the Shares under the 1933 Act, the Company shall (except as otherwise provided
in this Agreement), as expeditiously as possible:
(i) prepare and file with the Commission a registration
statement and shall use its best efforts to cause such registration statement to
become effective and remain effective until all the Shares are sold or become
capable of being publicly sold without registration under the 1933 Act pursuant
to Rule 144(k);
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the 1933 Act with respect to the sale or other
disposition of all securities covered by such registration statement whenever
the Purchaser shall desire to sell or otherwise dispose of the same until the
earlier of (A) one year from the effectiveness of the registration statement; or
(B) all Shares owned by the Purchaser or his Permitted Transferees are eligible
for sale under Rule 144(k);
(iii) furnish to the Purchaser such numbers of copies of a
summary prospectus or other prospectus, including a preliminary prospectus or
any amendment or supplement to any prospectus, in conformity with the
requirements of the 1933 Act, and such other documents, as the Purchaser may
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by the Purchaser;
(iv) register and qualify the securities covered by such
registration statement under such other securities or blue sky laws of such
jurisdictions as the Purchaser shall reasonably request, and do any and all
other acts and things which may be necessary or advisable to enable the
Purchaser to consummate the public sale or other disposition in such
jurisdictions of the securities owned by the Purchaser, except that the Company
shall not for any such purpose be required to qualify to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified or to
file therein any general consent to service of process or to register the Shares
8
under the blue sky laws of any state where the Company does not have a
"secondary trading" exemption;
(v) use its best efforts to list such securities on any
securities exchange on which any securities of the Company is then listed, if
the listing of such securities is then permitted under the rules of such
exchange;
(vi) INTENTIONALLY OMITTED;
(vii) notify the Purchaser at any time when a prospectus
relating to the Shares is required to be delivered under the 1933 Act, of the
happening of any event as a result of which such prospectus contains an untrue
statement of a material fact or omits any fact necessary to make the statements
therein not misleading, whereupon the Purchaser shall not effect any further
sales of the Shares pursuant to such prospectus, and, at the request of the
Purchaser, the Company will promptly prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of the Shares,
such prospectus will not contain an untrue statement of a material fact or omit
to state any fact necessary to make the statements therein not misleading,
whereupon the Purchaser may then effect sales of the Shares pursuant to such
supplemented or amended prospectus.
(f) Black Out Periods.
(i) The Purchaser hereby agrees not to, directly or
indirectly, effect any public sale or distribution (including sales pursuant to
Rule 144) or any short sales of equity securities of the Company, or any
securities convertible into or exchangeable or exercisable for such securities,
during the seven days prior to and the 90-day period beginning on the effective
date of any "Piggyback" registration under Section 7(b) hereof for a public
offering to be underwritten on a firm commitment basis in which any of the
Shares are included (except as part of such underwritten registration), unless
the underwriters managing the registered public offering otherwise agree.
(ii) The Company shall have the right to suspend use of any
registration statement and the related prospectus if its Board of Directors
determines in good faith that there is a valid purpose for such suspension. For
purposes of this Agreement, a valid purpose shall include, but is not limited
to, a good faith determination that the registration statement may contain a
material misstatement or omission (including as a result of the Company having
under consideration a significant acquisition or disposition or other material
transaction that has not been publicly disclosed) in which case the Company may
cause the registration statement not to be used by the Purchaser until such time
as the Securities and Exchange Commission (the "Commission") has declared
effective a post-effective amendment to the registration statement filed by the
Company or if the misstatement or omission can be corrected by incorporation by
reference in the registration statement of another Commission filing of the
Company, the Company has made another filing on Form 8-K or other appropriate
form to correct such misstatement or omission.
(iii) In connection with any public offering of the Company's
securities, the Purchaser agrees, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Shares (other than those included in the registration)
without the prior written consent of the Company or such underwriters, as the
case may be, for such period of time (not to exceed one hundred eighty (180)
days in the case of the Company's first underwritten public offering the gross
proceeds of which are at least $7,500,000, and ninety (90) days in the case of
other public offerings of the Company) from the effective date of such
registration as may be requested by the underwriters; provided that the
9
officers and directors of the Company who own stock of the Company and holders
of five percent (5%) or more of the Company's outstanding voting securities also
agree to such restrictions.
(iv) In order to enforce the foregoing clauses 7(f)(i), (ii)
and (iii), the Company may impose stop transfer instructions with respect to the
Shares (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
(g) Expenses. All expenses incurred in any registration of the
Shares under this Agreement shall be paid by the Company, including, without
limitation, printing expenses, fees and disbursements of counsel for the
Company, expenses of any audits to which the Company shall agree or which shall
be necessary to comply with governmental requirements in connection with any
such registration, all registration and filing fees for the Shares under federal
and state securities laws, and expenses of complying with the securities or blue
sky laws of any jurisdictions pursuant to Section 7(f)(iv); provided, however,
the Company shall not be liable for (i) any discounts or commissions to any
underwriter, (ii) any stock transfer taxes incurred with respect to the Shares
sold in the offering or (iii) the fees and expenses of counsel for the
Purchaser, provided that the Company will pay the costs and expenses of Company
counsel when the Company's counsel is representing any or all selling security
holders.
(h) Indemnification. In the event the Shares are included in a
registration statement pursuant to this Agreement:
(i) Company Indemnity. Without limitation of any other
indemnity provided to the Purchaser, either in connection with the offering or
otherwise, to the extent permitted by law, the Company shall indemnify and hold
harmless the Purchaser and its affiliates, any underwriter (as defined in the
0000 Xxx) for the Purchaser, and each person, if any, who controls such
underwriter (within the meaning of the 1933 Act or the Securities Exchange Act
of 1934 (the "Exchange Act")), against any losses, claims, damages or
liabilities (joint or several) to which they may become subject under the 1933
Act, the Exchange Act or other federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or violations
(collectively a "Violation") by the Company: (A) any untrue statement or alleged
untrue statement of a material fact contained in such registration statements
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements, thereto, (B) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading or (C) any violation or alleged violation by the Company of
the 1933 Act, the Exchange Act, or any state securities law or any rule or
regulation promulgated under the 1933 Act, the Exchange Act or any State
securities law, and, in each case, the Company shall reimburse the Purchaser and
its affiliates or underwriter for any legal or other expenses incurred by them
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Purchaser in any such case for any such loss, claim, damage, liability or
action to the extent that it arises out of or is based upon (1) a Violation
which occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by the
Purchaser or (2) by the Purchaser's failure to deliver to purchasers of the
Shares a copy of the registration statement or prospectus or any amendments or
supplements thereto pursuant to Section 7(e)(vii) after the Company has
furnished the Purchaser with a sufficient number of copies of the same.
(ii) Purchaser Indemnity. The Purchaser shall indemnify and
hold harmless the Company, its affiliates, its counsel, officers, directors, and
representatives, any underwriter (as defined in the 0000 Xxx) and each person,
if any, who controls the Company or the underwriter (within the meaning of the
1933 Act or the Exchange Act), against any losses,
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claims, damages, or liabilities (joint or several) to which they may become
subject under the 1933 Act, the Exchange Act or any state securities law, and
the Purchaser shall reimburse the Company, affiliate, officer or director or
partner, underwriter or controlling person for any legal or other expenses
liability incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action insofar as such losses, claims,
damages or liabilities (or actions and respect thereof) arise out of or are
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by the Purchaser; provided, however, that the maximum amount of
liability in respect of such indemnification (including, but not limited to,
attorneys' fees and expenses) shall be to an amount equal to the net proceeds
actually received by the Purchaser from the sale of Shares under such
registration statement.
(iii) Notice: Right to Defend. Promptly after receipt by an
indemnified party under this Section 7(h) of notice of the commencement of any
action (including any government action) such indemnified party shall, if a
claim in respect thereof made against an indemnifying party under this Section
7(h), deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in and if
the indemnifying party agrees in writing that it will be responsible for any
costs, expenses, judgments, damages and losses incurred by the indemnified party
with respect to such claim, jointly with any other indemnifying party similarly
noticed, to assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if the indemnified party reasonably believes that representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to the availability of separate defenses or actual or
potential conflicts of interests between such indemnified party and other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within reasonable time of the commencement of
an such action shall relieve such indemnifying party of any liability to the
indemnified party under this Agreement only if and to the extent that such
failure is prejudicial to its ability to defend such action; provided the
omission so to deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party otherwise than
under this Agreement.
(iv) Contribution. If the indemnification provided for in this
Agreement is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
hand in connection with the statements or omissions which resulted in such loss,
claim, damage or expense as well as any other relevant equitable considerations.
The relevant fault of the indemnifying party and the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, access to information and opportunity to correct
or prevent such statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 0000 Xxx) shall be
entitled to contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(v) Survival of Indemnity. The indemnification provided by
this Agreement shall be a continuing right to indemnification and shall survive
the registration and sale of any Shares by any person entitled to
indemnification hereunder and the expiration or termination of this Agreement.
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(i) Co-Sale Rights. Subject to Section 7(l) hereof, at least 15
business days prior to any sale, transfer, assignment, pledge or other disposal
(a "Transfer") of Common Stock or of securities convertible into Common Stock by
Xxxx Xxxxx or Xxxx Xxxxxx (each, a "Founder") (other than (i) pursuant to an
underwritten public offering of shares of the Company registered under the 1933
Act (a "Public Offering") or (ii) sales under Rule 144 (provided that the
Founders notify the Purchaser of such sales not more than five days subsequent
to the date thereof)), the Founder making such Transfer (the "Selling
Stockholder") shall deliver a written notice (the "Sale Notice") to the
Purchaser specifying in reasonable detail the identity of the prospective
transferee(s) and the terms and conditions of the Transfer. The Purchaser may
elect to participate in the contemplated Transfer by delivering written notice
to the Selling Stockholder within 10 business days after delivery of the Sale
Notice. If the Purchaser has elected to participate in such Transfer, the
Selling Stockholder and the Purchaser shall be entitled to sell in the
contemplated Transfer, at the same price and on the same terms, a number of
shares of Common Stock equal to the product of (x) the quotient determined by
dividing the number of shares of Common Stock owned by such stockholder by the
aggregate number of shares of Common Stock owned by the stockholders
participating in such Transfer and (y) the aggregate number of shares to be sold
in the Transfer by the other Shareholders participating in the Transfer. The
Purchaser, as a condition of exercising his rights under this Section 7(i),
shall enter into such documentation as is expected by the buyer of such Shares,
including, without limitation, documentation comparable to that entered into by
the Founders; provided, that if the Purchaser, at the time of such Transfer, is
no longer an officer or director of the Company, the only representation and
warranty that the Purchaser shall be required to make in connection with any
Transfer is a warranty with respect to its ownership of the Shares to be sold by
him and his ability to convey title thereto free and clear of liens,
encumbrances or adverse claims. Each stockholder transferring shares pursuant to
this Section 7(i) shall pay its pro rata share (based on the number of shares of
Common Stock to be sold) of the expenses incurred by the stockholders in
connection with such transfer and shall be obligated to join in any
indemnification or other obligations that the transferor agrees to provide in
connection with such Transfer, provided, however, that the maximum amount of
liability in respect of any indemnification obligation (including, but not
limited to, attorneys' fees and expenses) shall be to an amount equal to the net
proceeds actually received by the Purchaser from the sale of Shares in such
transaction. Notwithstanding the generality of the foregoing, the Purchaser's
rights under this Section 7(i) shall expire and be of no further effect upon
consummation by the Company of an underwritten public offering for gross
proceeds of at least $7,500,000.
(j) INTENTIONALLY OMITTED.
(k) Bring-Along Rights. (a) If, at any time on or after the date
hereof, persons holding, in the aggregate, 80% or more of the total Common Stock
issued and outstanding, acting in concert in connection with one transaction or
a series of related transactions, desire to Transfer their Common Stock to a
third party (such transferring persons referred to as the "Transferors") at a
price (payable in cash, debt or securities, or any combination thereof) of at
least (i) 150% of the price of the Common Stock as reported on the OTC Bulletin
Board, NASDAQ, or such other exchange where the Common Stock is trading on the
day of such Transfer and (ii) 300% of the Purchaser's original cost per Share,
the Transferors shall be entitled to require the Purchaser to Transfer his
Common Stock in such transaction (a "Buy-Out"). The Transferors shall cause the
proposed transferee(s) to accept the Transfer of the Common Stock of the
Purchaser on the same terms and conditions as are offered by the transferee(s)
to the Transferors, (except that, in the event that the Purchaser is no longer
an officer or director of the Company at the time of such Buy-Out, the only
representation and warranty that the Purchaser shall be required to make in
connection with any Buy-Out is a warranty with respect to its ownership of the
Shares, to be sold by him and his ability to convey title thereto free and clear
of liens, encumbrances or adverse claims.) Each stockholder transferring shares
pursuant to this Section 7(k) shall pay its pro rata share (based on the number
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of shares of Common Stock to be sold) of the expenses incurred by the
stockholders in connection with such transfer and shall be obligated to join in
any indemnification or other obligations that the transferor agrees to provide
in connection with such Transfer, provided, however, that the maximum amount of
liability in respect of any indemnification obligation (including, but not
limited to, attorneys' fees and expenses) shall be to an amount equal to the net
proceeds actually received by the Purchaser from the sale of Shares in such
transaction. If the Transferors elect to effect a Buy-Out:
(i) the Transferors shall deliver a notice (a "Buy-Out
Notice") to the Purchaser stating that they propose to effect Buy-Out, and
specifying the name and address of the proposed parties to such a Buy-Out,
the consideration payable in connection therewith, and attaching a copy of
all agreements and other documents between the Transferors and all of the
parties to such transaction necessary to establish the terms of such
transaction;
(ii) the Purchaser agrees that, upon receipt of a Buy-Out
Notice, he shall be obligated to sell all his Common Stock upon terms no
less favorable than the terms and conditions set forth in the Buy-Out
Notice; provided that any covenants and agreements, including, without
limitation, non-compete provisions, which do not relate to the amount and
method of payment of the consideration shall not be binding on the
Purchaser unless he expressly agrees to be bound thereby; and
(iii) the purchase price and the form of consideration for the
sale of all of the Common Stock made pursuant to a Buy-Out shall be the
same for each holder thereof in such transaction and such transaction
shall be required to be consummated on or before the later of (x) 60 days
after the giving of the Buy-Out Notice, and (y) the date which is 10 days
after the expiration or waiver of any applicable waiting period for such
transaction pursuant to the Xxxx-Xxxxx-Xxxxxx Act.
(b) Notwithstanding the generality of the foregoing, the Purchaser's
obligations under this Section 7(k) shall expire and be of no further effect
upon consummation by the Company of an underwritten public offering for gross
proceeds of at least $7,500,000.
(l) Transfer of Registration, Co-Sale Rights or Bring-Along Rights.
The rights of the Purchaser under Section 7 of this Agreement, including,
without limitation, the rights to cause the Company to register Shares under
Sections 7(a) and 7(b) and/or to participate in a Transfer pursuant to Section
7(i) and the obligations of Purchaser under Section 7(k) are personal to the
Purchaser and shall not survive any transfer of the Shares whatsoever, and may
not be assigned or transferred in any way, provided, however, that the
restrictions contained in this Section 7(l) shall not apply with respect to any
Transfer of Shares by either of the Founders or the Purchaser, pursuant to
applicable laws of descent and distribution or otherwise to such person's
spouse, former spouse and descendants (whether natural or adopted), parents and
their descendants, descendants of such brothers and sisters and any spouse of
the foregoing individuals or any trust solely for the benefit of any of the
foregoing; provided, however, that if any of the foregoing is less than 21 years
of age at the time of such proposed Transfer, then such Transfer may only be
made to a trustee of a valid trust for the benefit of the foregoing, which trust
shall not terminate prior to the beneficiary (or beneficiaries) thereof
attaining the age of 21 (collectively, "Permitted Transferees"). Except as
permitted herein, any attempted Transfer or assignment of the rights set forth
in this Section 7 shall be void ab initio:
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8. Indemnification. (i) The Purchaser shall indemnify and hold harmless
each of the Company, its directors, officers, persons controlling the Company,
any affiliate of the foregoing and any professional advisors thereto, from and
against any and all loss, damage, liability or expense, including costs and
reasonable attorneys' fees, to which any of them may be put or which they may
incur by reason of or in connection with any misrepresentation made by the
Purchaser, any breach of any of the Purchaser's warranties or the Purchaser's
failure to fulfill any of the Purchaser's covenants or agreements under this
Agreement.
(ii) The Company shall indemnify and hold harmless each of the
Purchaser, the Purchaser's affiliates and any of the Purchaser's professional
advisors from and against any and all loss, damage, liability or expense,
including costs and reasonable attorneys' fees, to which any of them may be put
or which they may incur by reason of or in connection with any misrepresentation
made by the Company, any breach of any of the Company's warranties or the
Company's failure to fulfill any of the Company's covenants or agreements under
this Agreement.
9. Definitions.
"Accommodation Obligation" shall mean, as applied to any Person and
without duplication of amounts, any obligation of such Person guaranteeing or
intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or
sold with recourse to such Person) any indebtedness, lease, dividend, letter of
credit, or other obligations ("primary obligation") of any Person in any manner
whether directly or indirectly, including any obligation of such Person or on
behalf of any other person (irrespective of whether contingent), or to otherwise
assure or hold harmless the owner of such primary obligation against loss in
respect thereof. The amount of any Accommodation Obligation shall be deemed to
be an amount equal to the maximum amount of a Person's liability with respect to
the stated or determinable amount of the primary obligation for which such
Accommodation Obligation is incurred.
"Capitalized Lease" shall mean any lease of an asset by the Company
or any subsidiary as lessee which would, in conformity with GAAP, be required to
be accounted for as a capital lease an the balance sheet of tile Company or such
subsidiary.
"Debt" shall mean, with respect to any Person, without duplication:
(a) all obligations of such Person for borrowed money; (b) all obligations of
such Person evidenced by bonds, debentures, notes, or other similar instruments;
(c) all obligations of such Person in respect of letters of credit, bankers
acceptances, interest rate swaps or other financial products or similar
instruments (including reimbursement with respect thereto), except such as have
been issued to secure payment of trade payables; (d) all obligations of such
Person to pay the deferred purchase price of property or services, except trade
payables; (e) all Capitalized Lease Obligations of such Person; (f) all
obligations or liabilities of others secured by a lien on any asset owned by
such Person, whether or not such obligation or liability is assumed by such
Person; and (g) all Accommodation Obligations of such Person.
"GAAP" shall mean generally accepted accounting principles that are
(i) consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, (ii) applied on a basis
consistent with prior periods (except for changes in the application of such
principles that have been approved by the Company's Board of Directors), and
(iii) such that, insofar as the use of accounting principles is pertinent, a
certified public accountant delivering an audit report on such financial
statements could deliver an unqualified opinion with respect to financial
statements in which such principles have been properly applied, subject,
however, to the absence or modification of footnotes and to the possible
inclusion of a "going concern" qualification.
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"Material Adverse Effect" shall mean a material adverse effect on
the assets, condition (financial or otherwise), affairs, earnings, business or
operations of the Company
"Person" shall mean an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature, including, as appropriate, the Company or any subsidiary thereof
10. Miscellaneous. (a) This Agreement shall be governed by and construed
in accordance with the internal laws of New York (without giving effect to the
conflict of laws rules thereof) applicable to contracts, transactions and
obligations entered into, and to be wholly performed, in New York.
(b) The Purchaser and the Company each acknowledge that their
respective representations and warranties shall survive the date of the purchase
of the Shares by the Purchaser.
(c) This Agreement contains the entire agreement between the parties
hereto with respect to the subject matter thereof. The provisions of this
Agreement may not be modified or waived except in writing and signed by both
parties hereto.
(d) This Agreement and the rights, powers and duties set forth
herein shall, except as set forth herein, bind and inure to the benefit of the
heirs, executors, administrators, legal representatives and successors of the
parties hereto. Except as set forth herein, the Purchaser may not assign any of
his rights or interests in or under this Agreement without the prior written
consent of the Company, and any attempted assignment without such consent shall
be void and without effect.
(e) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original and all of which taken together shall
constitute a single agreement.
15
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ERGOVISION, INC. PURCHASER
By:__________________ ___________________________________
Name: Xxxx X. Xxxxx By:
Title: President
Address: _____________________
__________________________
Soc. Sec. No. ___________
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